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Bond Valuation and Analysis in R

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  • 13 Videos
  • 43 Exercises
  • 4 hours 
  • 698 Participants
  • 3250 XP

Instructor(s):

Clifford Ang
Clifford Ang

Clifford S. Ang, CFA is a Vice President at Compass Lexecon. He specializes in valuation, corporate finance, and damages, and has worked on hundreds of engagements involving companies across a broad spectrum of industries. He is the author of Analyzing Financial Data and Implementing Financial Models Using R.

Collaborator(s):

Lore Dirick Lore Dirick

Matt Isaacs Matt Isaacs

Course Description

Why value bonds? Bonds are securities issued by governments or corporations that pay interest over a fixed schedule and are the most well-known type of fixed income securities. The US fixed income market is 1.5x larger than the US stock market, but, unlike stocks, most fixed income instruments, including bonds, trade very infrequently. Consequently, a bond's price may be a less reliable indicator of its value and analytical techniques are necessary when analyzing and valuing bonds. After this course, you will be able to use R to develop a model to value a fixed interest rate bond, estimate and analyze a bond's yield (i.e., a measure of the opportunity cost of bond investors), and model techniques used to protect bond portfolios from changes in interest rates.

1Introduction and Plain Vanilla Bond Valuation Free

The fixed income market is large and filled with complex instruments. In this course, we focus on plain vanilla bonds to build solid fundamentals you will need to tackle more complex fixed income instruments. In this chapter, we demonstrate the mechanics of valuing bonds by focusing on an annual coupon, fixed rate, fixed maturity, and option-free bond.

Duration and Convexity 

Interest rate risk is the biggest risk that bond investors face. When interest rates rise, bond prices fall. Because of this, much attention is paid to how sensitive a particular bond's price is to changes in interest rates. In this chapter, we start the discussion with a simple measure of bond price volatility - the Price Value of a Basis Point. Then, we discuss duration and convexity, which are two common measures that are used to manage interest rate risk.

Comprehensive Example 

We will put all of the techniques that the student has learned from Chapters One through Three into one comprehensive example. The student will be asked to value a bond by using the yield on a comparable bond and estimate the bond's duration and convexity.